1.3. Who Commits Frauds?
Everyday, there are revelations of organizations behaving in discreditable ways. Generally, there are three groups of business people who commit financial statement frauds. They range from senior management (CEO and CFO); mid- and lower-level anagement and organizational criminals. CEOs and CFOs commit accounting frauds to conceal true business performance, to preserve personal status and control and to maintain personal income and wealth. Mid- and lower-level employyees falsify financial statements related to their area of responsibility (subsidiary, division or other unit) to conceal poor performance and/or to earn performance-based bonuses. Organizational criminals falsify financial statements to obtain loans, or to inflate a stock they plan to sell in a “pump-and-dump” scheme. While many changes in financial audit processes have stemmed from financial fraud, or manipulations, history and related research repeatedly demonstrates that a financial audit simply cannot be relied upon to detect fraud at any significant level.